In the commercial agents case of Rossetti Marketing Ltd v Diamond Sofa Company Ltd and another (2011), the High Court implied a term into a commercial agency contract allowing the sales agent to act for multiple competing principals without it being a breach of the agency contract.  Before this decision, there had been no legal authority under the Commercial Agents (Council Directive) Regulations 1993 (the “Commercial Agents Regulations 1993”)) on the question of whether the duty placed upon a commercial agent under Commercial Agents Regulations 1993 would be breached if the agent acted for competing principals. 

The key lesson for principals arising from this case is that if principals do not want a sales agent to act for competitors, an express agreement to this effect should be included in the agency contract.  If there is no written commercial agency contract, principals should consider codifying the relationship in writing or at the very least, should write to their agents explaining that they are forbidden from working for competing principals.

In addition, this case contains a useful analysis as to the scope and extent of the obligation of the commercial agent to act dutifully and in good faith and suggests that the duty is to be assessed by reference to the contractual relationship between the parties.  This issue is key when considering compensation claims brought by sales agents under the Commercial Agents Regulations 1993.

Facts
Rossetti Marketing Ltd (“Rossetti”) acted as agent for the Diamond Sofa Company Ltd (“Diamond”), a Thai furniture manufacturer.  The parties did not have a written agreement.  Rossetti was also agent for other Asian furniture manufacturers.  Diamond was aware of this fact and did not raise concerns about it during the currency of the agency.

In June 2008, Diamond terminated the agency.  One of the reasons it gave was that Rossetti represented too many manufacturers.
Following termination of the agency, Rossetti brought a claim for compensation under the Commercial Agents Regulations 1993, which Diamond resisted.

At a trial of preliminary issues, the High Court considered a number of matters, including whether:

1. in acting for competing principals, the agent was in breach of the duty imposed by the Commercial Agents Regulations 1993 to act dutifully and in good faith; and

2. as a result of the fact that Rossetti acted for competing principals, its activities for Diamond were secondary and therefore, it should be excluded from the right to claim under the Commercial Agents Regulations 1993.

Decision
Mr Justice Cranston held that the Regulations could apply to an agent acting for multiple competing principals.  In so doing, he referred to the intention underpinning the Regulations, which is to protect commercial agents.  In addition, Cranston J observed that the Regulations set out the types of agent to whom the Regulations do not apply and noted that agents acting for multiple principals are not listed.  Cranston J held that it could not be the intention of the Regulations to limit the agents to whom they applied to those with one principal per class of goods, regardless of the commercial context.

Cranston J observed that there were clear dangers to a principal where an agent acted for its competitors, including the potential conflict of interests faced by an agent who was negotiating with the same third party on behalf of several competing principals.  In these circumstances, the interests of the third party may be preferred over the principals’ interests, as, for example, the price payable to any principal may be driven down by the existence of competition.

However, it does not follow that in acting for multiple competing principals, an agent is in breach of its obligation to act dutifully and in good faith.  Cranston J held that an agent’s obligation to act dutifully and in good faith under the Commercial Agents Regulations 1993 can be defined by the contractual context in which the parties operate.  In reaching this conclusion, he referred to the case of Kelly v Cooper (1993) which involved estate agents, where it was held that a term allowing an agent to act for numerous principals, where the principal knows that the agent acts for and intends to act for other principals selling property or goods of the same description, can be implied into the contract between the parties.

In Rossetti, there was no express contractual term, or any other express term, from which any inference could be drawn about acting for competing principals.  Consequently, where a principal is aware that the agent acts for competing principals and does not object, an implied term may arise allowing the agent to do so. 

In this case, the Court implied a term authorising Rossetti to act for competing principals.  By way of observation, the Court appeared to suggest that despite being able to act for competing principals without breaching its duties (where the contractual context allows), it is possible that an agent may still breach its duties if, unbeknown to the principal, it sold one principal’s products at the expense of the products of another principal. 

The Court did not investigate whether this had actually occurred in the relationship between Rossetti and Diamond.

Cranston J gave short shrift to Diamond’s argument that as a result of the fact that Rossetti acted for competing principals, its activities for Diamond were secondary and therefore, it should be excluded from the right to claim under the Regulations.  The Judge held that the Regulations do not contain anything to indicate that an agent acting for multiple principals is conducting secondary activities and that in this case, it was clear that Rossetti was not undertaking secondary activities.

For further information on bringing or defending Commercial Agents Compensation Claims or contractual issues relating to the same please contact specialist Andrew Leach from our Commercial Agency Legal Team:

andrew.leach@cobbetts.com.
Tel: 0845 404 2564/ +44 121 237 2564.

The content of this article is intended for information only and should not be used as a substitute for legal advice.  Copyright 2011 Cobbetts - All rights reserved - November 2011